Bank-owned properties can be a deal for a buyer, but they come with built-in challenges from complexities in financing to angry previous occupants. And be sure to come with a good credit report and a large down payment.

Can you really get a bargain buying a bank-owned home? Tricia and John Donhowe think so.

After selling their San Francisco Bay Area home and moving to Seattle last year, the couple wanted to explore whether they might pay less buying a bank-owned home — known in the industry as real-estate owned, or REO. Along the way, they experienced burst pipes, frustrating waits and a bidding war. But, in the end, they snagged a Snoqualmie Ridge home at nearly $100,000 below market value.

It wasn’t exactly the pennies-on-the-dollar deal many Internet real-estate Web sites promise, but the Donhowes say the extra effort it took to make a bank-owned home purchase was well worth it. A few lessons from the Donhowes’ REO house hunt:

• Find an expert.

Most agents they contacted knew little about the world of bank-owned property and weren’t inclined to show them REO homes. They ended up working with REO specialists Keith Zeiler and Tim Andrews of John L. Scott affiliate TK2 Associates in Issaquah, who have experince as sellers’ agents representing banks with foreclosed property.

These agents are a select group who shoulder some additional responsibilities for the banks they represent.

They often have to shell out the maintenance and repair expenses required to get an REO home ready to sell, paying gardeners, cleaners and even roofers out of pocket. The bank reimburses the agent, but usually not until the home sells.

They may also get the unpleasant task of persuading any remaining occupants — former homeowner or renter — to move out so the home can be sold. Banks usually empower the agent to offer relocation money to encourage occupants to leave.

“I’ve been chased off a property at gunpoint fairly recently,” Andrews notes. “You don’t go out alone. But most times, people have come to grips with it and are ready to move on.”

• Consider a fixer.

Many REO homes are not in prime condition, having been either neglected or even trashed by angry departing homeowners.

In the Donhowes’ case, the home had a garish interior paint job and needed landscaping, but otherwise seemed fine — until the couple asked to turn on the water to check the plumbing. A burst pipe promptly sent water flooding into the house, damaging the home’s wood floors before the water could be shut off again.

• Work with intermediaries.

After the leak, the Donhowes endured weeks of agonizing waiting for approval to repair the water damage. Why? Their home’s mortgage holder, Lehman Brothers subsidiary Aurora Loan Services, had outsourced the task of marketing the home to a third party, First American REO Servicing. Outsourcing has become commonplace, particularly with small banks or those with a large REO inventory, says Ed Watts, an REO specialist at Property 1st in Bothell.

The Donhowes contacted First American, and then had to wait for a response to filter back from the lender.

• Patience helps.

Prices on bank-owned homes may start out on par or higher than comparable homes in the market, but banks are under pressure to move bad loans off the books.

“REO properties absolutely will get re-priced if they don’t move,” says Marc Wright, executive vice president at Seattle-based HomeStreet Bank, which had $3.5 million in repossessed property on its books this summer.

The Donhowes’ Snoqualmie Ridge home came on the market at $540,000, for example, but just one month later the price had come down dramatically, to $399,000.

• Inspect carefully.

In an REO home sale, there is no homeowner to attest to the home’s condition. This makes a thorough home inspection absolutely critical, says TK2’s Andrews. Banks sell property “as is” without any warranties as to its condition.

• Look for back-end concessions.

Banks don’t like to negotiate their sale price once they’ve accepted an offer, even if homebuyers turn up problems. They want to record the highest possible price on their books. But they may offer concessions during escrow — the Donhowes won a $4,000 credit against their escrow costs to help fix their water problem.

• Make your best offer.

Once a bank cuts its price, a bidding war often ensues. Banks then evaluate offers for price, the buyers’ creditworthiness and the likelihood the buyer can close escrow quickly.

This was the case with the Donhowes’ home, which received multiple bids once the price dropped. Tricia Donhowe says their late January offer of $471,225 was the second highest of four offers, but won out because of their stellar credit rating and large down-payment offer. The deal wrapped up in about 45 days, Donhowe says.

The couple felt good when a similar home in the same development in a bit better condition sold just a few months after their purchase for $567,500.

“We were pleased to see what our house will be worth,” she says, “once we make cosmetic improvements and do some landscaping.”